REI INK

A Newfound Hope

How Investors are Shifting with the Market by Amy Daniel There is an emerging excitement for investors as activity is beginning to reignite in the space. For the last few years, there was a pause in the market as rates increased, housing costs soared, and inventory remained low. But as 30-year fixed mortgage rates begin to drop, there is a newfound hope across the entire market, with rates averaging 6.46% in the first week of September, down from 7.22% in early May and a recent high of 7.79% in October 2023. This is the lowest rates have been since April 2023. While investors typically take on 5-year short term loans that recently have had lower rates than a 30-year fixed mortgage and have been much steadier, changes across the entire market have an impact on the space and investors are beginning to react. We are starting to see things loosen up and investors who sat out over the last few years are coming back, ready to play. Investor home purchases in the second quarter of 2024 were up 3% year-over-year. That means investors purchased a total of $43 billion worth of properties, according to a Redfin report. The most popular purchase for investors in Q2 was single-family homes, which comprised 69% of all investor purchases. As investors work on next steps within the every-changing market—whether it is shifting their portfolio or thinking about refinancing — there’s a lot of moving parts that they need to consider. Impact of the Market We are seeing a lot of larger investors pruning their portfolios right now, whether there is a certain area that they want to get out of, or they are looking to switch up their inventory. Lower traditional rates will have a large impact on this and should be seen as a positive for those looking to make a change in their portfolio. As investors sell off assets, simply put, they need someone to buy them. In many instances, they are selling to individual buyers who are purchasing these homes as a one-off asset. As traditional 30-year fixed rates drop, investors can sell off assets faster and make a switch. They are no longer stuck in a market with no movement and can make moves to prune their portfolio. What is the Right Move? As rates begin to shift, simultaneously, many investors have loans that were taken out during the hot pre-pandemic market from 2018 to 2020 come due. With this, lenders are being more aggressive and having conversations with borrowers to determine the next steps: Do they want to pay off the loan or pull in different assets and refinance? With 5-year short-term loans coming due and movement in the market, we are seeing an increase in refinance requests from investors looking to refresh their portfolios. So, what is the right move? Investors are constantly thinking about the bottom line and there are certainly deals to be had as the market continues to change. Refinancing can help investors leverage a lower rate or tap into equity to make improvements or rehab a property. It is important to track the data and analysis to determine the next steps. Historically, refinancing could make sense for investors any time they are saving one or more percentage points. The terms of the loan should also be at the forefront of an investor’s mind when they are considering refinancing. Is there a pre-payment penalty? Carefully reviewing the terms of the original loan is vital. It is important to understand the rules and parameters of the loan before making a move. The Right Lender With every decision — from making changes to their portfolio to refinancing — investors must partner with the right lender who will help them make the best decision for their unique situation. The right lender will be proactive and communicate with investors frequently, keeping them aware of changes in the market and when it might be beneficial for them to refinance. Investors should seek out a lender that is not going to make them jump through hoops and someone who specifically understands the single-family rental space. Building an ongoing relationship with a lender can make a big difference. Investors should find a lender who understands the space, what they are trying to accomplish, and one who will help them get to their end game. Looking Ahead: What’s to Come It is tough for anyone to know what lies ahead but those of us who are in the space are always focused on margin and profitability. We are starting to see some areas where values are coming down and we have seen some rate improvement. If that continues into 2025, despite rental pricing coming down, investors could still find some good deals and make the margins they are looking for in their specific markets. And they should have a healthy swing on portfolio growth and allow for some continued pruning to happen in areas where investors want to sell. The lower rates will help the one-off purchase of these homes to homeowners. On top of everything else that is going on, we are also in an election year which could spark additional changes in the future for the real estate community.

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Title Insurance 101

Navigating the Differences Between Lender’s and Owner’s Policies by Radian Title Services Protecting assets is a primary goal for experienced real estate investors, but do you fully understand one of the most common safeguards in property transactions? Title insurance for your investments comes in two forms: the lender’s and owner’s policies. All investors should understand these policies and how they may help protect real estate assets. Lender’s Title Insurance Policy Lender’s title insurance policies may be required when borrowers take out a mortgage. Here is some helpful information:  »         Coverage Scope // Only protects the lender’s interest in the property up to the loan amount.  »         Diminishing Value // As borrowers pay down the principal mortgage amount, the policy’s coverage amount also decreases accordingly.  »         Limited Lifespan // Once the loan is paid off, the insurance policy expires. Lender’s title insurance policy coverage does not extend to a borrower’s equity in the property. Should a claim arise under a lender’s title insurance policy, the borrower may still be responsible. It is important to note that lender’s coverage does not apply when you pay cash for a property. Owner’s Title Insurance Policy Protecting your stake in a property is where owner’s title insurance may help:  »         Equity Protection // Helps safeguard ownership rights and the full value of the title1.  »         Lasting Coverage // Policy coverage does not expire once the mortgage is paid off (or if you have paid in all cash). Instead, the policy terminates when the insured sells the property.  »         One-Time Investment // These policies are paid for once at closing, and coverage continues for as long as the owner, or their heirs, have an interest in the property. Owner’s title insurance policies may not be just a safety net, but also a strategic tool. It can help protect your property interests from unforeseen claims, such as:  »         Undisclosed heirs of prior title holders claiming ownership  »         Forged documents that occurred prior to insurance policy issuance  »         Errors in public records  »         Undiscovered liens or encumbrances Not All Title Insurance Policies Are Made Equal It is easy to believe that all title insurance policies are created equal, but that is not entirely true. While the American Land Title Association (ALTA) and state land title associations provide standard policy forms, there can be variations in coverage and service quality. Innovative title companies are disrupting the status quo. For instance, Radian Settlement Services offers titlegenius by Radian, a 100% digital closing platform that revolutionizes closings:  »         Competitive Rates // Helping to potentially reduce closing costs without compromising on protection.  »         Enhanced Transparency // Stay informed at every step of the closing process with reminders and status updates.  »         Bulk Order Uploading // Reduce the time spent manually ordering title insurance for each closing. These innovations represent convenience, potential cost savings, and help to reduce uncertainty around your real estate closings. Strategic Considerations for Title Insurance  »         Portfolio Protection // When building a real estate portfolio, consider how an owner’s title insurance policy may provide long-term protection across multiple properties.  »         Due Diligence Tool // The title search process for title insurance can help uncover potential issues before you close, enabling proactive addressing.  »         Cost-Benefit Analysis // The advantages of owner’s title insurance policies may exceed the initial investment when you compare that cost to potential expenses incurred while fighting claims not covered by insurance. The Bottom Line Your success hinges on making informed decisions that help to protect your assets. While lender’s title insurance policies are oftentimes mandatory, owner’s title insurance policies may be used as strategic investments in your portfolio’s future. Safeguarding assets is essential. Incorporating title insurance into your investment strategy may help to protect your property rights and provide peace of mind. 1          Coverage amount may be the lesser of the insurance amount or the difference between value of title as insured and value of title subject to the risk insured against by the policy. Coverage does not include forgery that occurred pre-policy issuance (or the Investor’s acquisition); other restrictions may apply.

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Understanding New Construction Investments

A Challenge Well Worth its Rewards by Andy Bates Navigating today’s market often requires a sense of dynamism. Working between flipping properties and rental holds has helped many investors maintain and grow their business, but these are not the only kinds of investments available to the savvy investor. New construction is another lucrative investment type but its distinction from an existing property comes with significant process changes for the investor. Understanding additional factors that play into a new construction investment and the best practices for them will illustrate a path to success for investors with this strategy. Building on Purpose As with any investment, before financial commitments are made, it is always advisable to thoroughly understand the undertaking at hand. Newly constructed properties serve a primary function of adding inventory to the markets in which they are built. When acquiring funding to construct new residences as investments, it’s important to consider the structure of those loans. While conventional lending can be used for the building of a new primary residence, investment financing is, by definition, commercial in its structure. The most important distinction here being that commercial loans cannot be used for primary residences. Such a use case would result in default on the loan. Instead, private funding focuses on investments, so any newly constructed residences would need to be sold or held for cashflow. Project Scope Beyond discerning their exit strategy, investors must also be aware of the scope of their upcoming project. It is one thing to build a new, one-unit or even four-unit property where a neighborhood already exists. It is quite another to consider the building of dozens or even hundreds of units. While different lenders will focus on, and provide for, projects of all scales that fit their buy-box, development, at any scale, requires an understanding of horizontals which may or may not already be in place. Horizontals are all installations which “attach” to a property or properties in an area, outside of the structures themselves. Roads, pavement, sidewalks, water and waste lines, gas and power are all examples of infrastructure that is imperative for a new build, even if they are not directly part of the cost and construction of an investment. Some lenders will only provide for new construction projects in which horizontals like these are already established. These can look like undeveloped lots in existing neighborhoods. In urban settings, “in-fill” projects are those that position new builds between existing structures in an established neighborhood. As the establishment of horizontals in areas without such infrastructure demand significantly more time, capital, planning and resources, opting instead to build on a parcel of land where horizontals are already in place can make it easier to acquire plans and permits for the build or even access financing. All in its Proper Place While the notions of obtaining approved plans and keeping up to code are not new to any experienced real estate investor, new construction comes with more groundwork in these areas. While an investor might be able to secure funding for light or even heavy rehab projects with as little as a scope of work or line-item rehab list, for new construction, plans and permits must be in place before funding can be secured and building can begin. Fortunately, even with an increase in paperwork comparative to other investment types, these documents tend to be fairly standardized across all US housing markets. Entitlement letters, zoning verification letters, and compliance reports are all examples of common documents investors can expect to work with on a new construction project. Many lenders servicing new construction investments will want to ensure they are executed by an experienced hand. In this way, it is important for the average investor to work with experienced builders and general contractors not only to secure necessary funding but also to ensure that the structure to be is sound. These professionals have verifiable credentials like references, project history and up-to-date licensing which can indicate to both lenders and municipalities that the project will be completed in accordance with code and compliance. If acquiring plans, permits, and approvals for a standard renovation takes time, then it stands to reason they might take much more time for a fresh build. Keeping on top of documentation is its own skillset and with more moving parts on a new construction comparative to other investments, it is imperative that investors keep on top of, and plan around timelines for approval. If an investor should find themselves without plans and permits in place prior to closing, all is not necessarily lost. Investors can leverage verifications on proposed plans with third party architects working within the local municipality. Additionally, investors may acquire formal confirmation of proposed plans from a state or local council where ordinances allow for these exceptions. Nothing Ventured, Nothing Gained With private lending, it’s common for construction and renovation projects to be funded under a reimbursement structure. This means that builds are planned in phases. Once a phase of work has been completed, it is reported to the lender who then sends out a third-party inspector to verify the work and materials used. With confirmation from the inspection, the lender releases funds to reimburse investors for each phase of work as it is completed. Reimbursements, alongside plans and permits, reinforce the need for investors to have a firm understanding of the scope of work for their construction investments. This includes what may impact timelines and how delays might impact the build overall, including the investors exit strategy. Opportunity for the Tactful In a housing market in need of inventory, a build-to-sell approach may seem like the obvious path for new construction investors. However, investors should be as thorough in their investigation of an exit strategy as they were when developing plans and acquiring permits. Market area indicators like housing starts, homes sales, and employment statistics are all useful metrics when considering the most favorable course of action in a given market.

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Understanding Deed Fraud

A New Approach to Protecting Your Property by Ryan Marshall In today’s world, where identity theft and cybercrime are rampant, property owners face another growing threat: deed fraud. This under-the-radar crime can leave property owners in a legal and financial battle after discovering that their property has been fraudulently transferred, mortgaged, or even sold without their knowledge. As real estate fraud becomes more sophisticated, it is crucial for property owners to understand how to protect themselves from these threats and explore both traditional title insurance and a newly developed concept for safeguarding property ownership. What is Deed Fraud? Deed fraud, also referred to as property fraud, occurs when someone illegally transfers ownership of a property without the rightful owner’s consent or knowledge. Fraudsters often target properties that are unoccupied, have no mortgage, or belong to elderly individuals who may not monitor their property records regularly. Some of the most common tactics used by fraudsters include:  »         Seller Impersonation // Criminals assume the identity of the rightful owner, sometimes claiming squatter or trespass rights, and even listing the property for sale using fake online profiles on websites like Zillow.  »         Deed Fraud // Fraudsters obtain a copy of a deed from public records, alter the Grantor/Grantee information, and re-record the deed, effectively transferring ownership to themselves or another party.  »         Mortgage Fraud // Perpetrators take out loans against the property using false credentials, often targeting properties with low loan-to-value ratios.  »         Trustee Certifications // A fraudulent notarized trust certification is presented, falsely claiming the authority to transfer or encumber the property.  »         Corporate Fraud // Fraudsters change corporate filings with the Secretary of State to assume control of an LLC or corporation, allowing them to sell or mortgage properties owned by the company. These methods leave property owners at risk of losing their home or being saddled with debts they did not incur. Reversing the damage caused by deed fraud can be a lengthy and expensive process. Traditional Title Insurance vs. A Newly Developed Concept For many property owners, traditional title insurance has long been the first line of defense against title-related issues, including fraud. However, title insurance has its limitations, particularly when it comes to post-purchase fraud, leaving significant gaps in protection. Title Insurance History and Limitations  »         Expanded Homeowner’s Title Policy // This policy was not introduced until 1998 and did not see widespread adoption by most states until 2006. It was not until 2021 that the policy became more commonly promoted, largely in response to complaints from homeowners who discovered their title insurance did not cover fraud.  »         Coverage Limitations // Even today, expanded homeowner’s title policies only cover 1-4 family unit dwellings, leaving approximately 88 million properties in the United States — including rental properties, commercial real estate, and vacant land — without any protection against title fraud.  »         Reactive Nature // Title insurance typically covers issues that occurred before the policy was issued. It addresses problems after the fact, rather than preventing fraud in real time.  »         No Continuous Monitoring // Once the policy is issued, there is no ongoing monitoring or protection in place. Title insurance does not track changes in the title or alert property owners to suspicious activity that could indicate potential fraud. A New Approach to Property Protection Recognizing the need for a proactive solution, a new concept has emerged that offers continuous monitoring and protection against fraud in real time. Unlike traditional title insurance, this innovative product is designed to prevent fraudulent activities before they can cause irreparable harm to property owners. Key features of this new concept include:  »         Proactive Fraud Prevention // This system continuously monitors public records, title activity, and other risk factors associated with your property. If any suspicious changes or fraudulent attempts are detected, the property owner is immediately alerted and action is taken to prevent unauthorized transfers or liens.  »         Comprehensive Coverage // While traditional title insurance focuses on covering 1-4 unit residential properties, this new approach expands coverage to include various types of properties, such as rental units, vacant land, and commercial real estate — filling the gap left by title insurance.  »         Real-Time Alerts and Restrictions // One key tool is the Notice to Restrict Voluntary Conveyances, a legally recognized document that prevents unauthorized transfers of ownership by requiring additional verification and approvals. This ensures fraudsters cannot easily transfer ownership of the property without detection. Why Traditional Title Insurance Falls Short While expanded title insurance offers some protection, it was not designed with modern fraud tactics in mind. Even the homeowner’s policy, which was not widely adopted until the early 2000s, was never intended to proactively guard against evolving threats like cybercrime and identity theft. Here are some critical limitations of title insurance in today’s environment:  »         Limited to Historical Issues // Title insurance primarily protects against historical defects, such as undisclosed liens or prior fraud, and offers little coverage for fraudulent activities that happen after the property has been purchased.  »         No Real-Time Protection // Once the policy is issued, there is no further protection, leaving property owners vulnerable to fraud that can occur months or years later.  »         Property Type Exclusions // With coverage limited to specific property types (1-4 family unit dwellings), millions of properties — about 88 million across the U.S. —are left without any type of protection against deed fraud. Given these limitations, property owners are increasingly seeking more comprehensive solutions to safeguard their titles against fraud in today’s evolving landscape. Addressing the Growing Threat: High-Risk Parcels Without Coverage The reality is that millions of properties in the United States are at high risk for deed fraud and remain unprotected. These properties often include second homes, rental properties, vacant land, and commercial properties—prime targets for fraudsters because they tend to go unchecked for long periods. Without adequate protection, these owners face significant financial and emotional risks if their property is targeted by fraud. As awareness of the limitations of title insurance grows, so too does the demand

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Due Diligence Solutions for Investors

Tailored Approaches for Complex Transactions by Radian Real Estate Management In today’s dynamic investor-owned real estate market, a one-size-fits-all due diligence solution no longer suffices. Gone are the days of a manual process. Sophisticated transactions demand solutions that address the unique risks and challenges of each deal type. To stay competitive, it is important to leverage a provider that can help to create a customizable approach that meets the increased demand. In fact, a recent REI INK article, “A One Click Real Estate Transaction,” highlights how leveraging technology through a diligence provider may help “free up the professionals to focus their attention on higher level decision-making rather than time-consuming and repeatable data entry.” Let’s explore how tailored due diligence solutions are helping to reshape the industry for the following:  »         Single Family Rental // May help warehouse providers manage risk while supporting their clients’ capital needs.  »         Build-to-Rent // May facilitate collaboration between various stakeholders to assess the project.  »         Rent-to-Own // May enable investors to make more informed decisions and help mitigate risks associated with contracts.  »         i-Buyer // Helps to streamline the valuation and acquisition process.  »         Residential Transaction Lending // Helps quickly identify potential red flags and manage compliance with complex underwriting requirements. As a leader in best-in-class diligence and valuations services, Radian Real Estate Management has been helping investors stay competitive through a consultative approach since the inception of the asset class. By embracing customizable due diligence solutions, stakeholders can make more informed decisions, help mitigate risks, and look to unlock new opportunities in a complex market environment.

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Maximizing Your Retirement Strategy

The Power of Self-Directed Accounts by John “Jack” Kiley, CPA, CISP I have been working with retirement accounts for a long time. As a young CPA, at the first CPA practice I worked for, I learned about self-directed retirement accounts. The firm’s basic recipe was to provide bookkeeping services for its clients’ business activities and then prepare the business and individual tax returns. As a client’s business became more profitable and cash flowed, we would layer a retirement plan into the mix, and the business would make tax deductible contributions to the plan. Effectively, the client was moving money from his ‘taxable pocket’ to his ‘tax deferred pocket.’ Many of these clients were involved in real estate in some fashion, either as developers, brokers, or investors. These clients were familiar with self-direction and were constantly asking how they could utilize these types of plans. Being the young (and stupid) guy at the firm, I was tasked with figuring out how to do this. It was at this time I became intimately familiar with self-direction. I learned very quickly that what self-direction really meant was the ability to invest in a vast array of asset classes beyond stocks and bonds. It was about this time when I also became familiar with investing in promissory notes. As an avid real estate investor myself, and being a numbers guy, I understood the financing of real estate and took an interest in it. Even back in those days, there was a dizzying array of financing products and lenders to choose from. I learned to marry promissory note investments and retirement plans. For me this was a perfect mix; and for you, it may be as well. Playing 3D Tax Chess First, the combination of your preferred investment, lending, along with self-directed retirement plans (SDIRAs) allows you to play three dimensional ‘tax’ chess. First, because SDIRAs allow for a wider spectrum of investment options, you can lend on your terms: tax deferred or tax free (Roth). Secondarily, you can also lend as you currently do in a taxable environment. This allows you to strategically lend. For instance, for opportunities that you feel have a high likelihood of success, you may choose to invest in the tax deferred or tax-free environment to maximize return. The opportunities that you might consider to be more risky or may need a little finesse, you might choose to do in a taxable environment. Careful planning is important because if you lose money in a retirement plan, you just lose. There is no tax deduction. Self-direction allows you to use your team to identify investments and perform due diligence. The custodian does not tell you to who you must use so long as they are not identified as ‘disqualified persons’ (A classification of people and entities the SDIRA cannot transact business with). This group is made up primarily of family members and you can contact your custodian for more information. This allows you to use vendors and professionals that you know and trust. Micro vs Macro Level Self-direction gives you the flexibility to invest in notes either on a micro or macro level. On a micro level, you are able to pick and choose debtors you wish to lend to and require whatever information you feel is relevant in making that decision. You control all the inputs including the amount, term, interest rate, and form of collateral. You are able to tailor these to give you the level of comfort you feel is necessary. This also gives you the ability to build your portfolio as you see fit. On a macro level, you are able to partner your capital alongside other capital to participate in larger loans or pools of loans. This allows you to tap into the expertise of others and gain access to transactions that you may not otherwise be able to reach. In fact, many of the large lenders in our field pool capital in this fashion and a significant percentage of that comes from retirement plans. Involvement in some of these investments may require you to certify that you have a certain level of assets to participate in the transaction (accredited investor status) so be prepared to provide this data. Lastly, there are a number of retirement plan options available to you. For individuals, there are Traditional and Roth IRAs. Most people are familiar with these. Traditional IRA earnings are tax deferred and Roth IRA earnings are tax free after a seasoning period. For business owners, there are a couple other plan options; SEPs, SIMPLE IRAs and 401k plans, among others. Many of these plans may have Roth components which gives you even greater flexibility. These plans also have higher contribution limits allowing for an accelerated ability to move capital from your taxable ‘bucket’ to your tax deferred or tax free ‘bucket.’ Self-directed retirement accounts give you the opportunity to use your expertise and knowledge to invest in assets that you may feel more comfortable with than marketable securities or at a minimum, not put all your eggs in one basket. Through careful thought and planning you are able to build the retirement nest egg you desire.

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